Tag Archives: Guidelines

Zambia: New Penalty Guidelines may Incentivise Firms to Apply for Leniency

By AAT Senior Contributor, Michael-James Currie.

At the recent International Competition Network conference held in Singapore, the International Competition Network (ICN), in conjunction with the World Bank, named the Zambian Competition and Consumer Protection Commission (CCPC) as one of the best Competition Authorities in advocating competition in key domestic markets.

The CCPC, as a competition agency, is making significant strides to ensure that the Zambian market is competitive to ensure greater consumer benefit.

In particular, the CCPC has, in recent years, strengthened its efforts to detect cartel conduct. This includes carrying out search and seizure operations, initiating investigations and introducing a corporate leniency policy (Zambian CLP) for whistle-blowers.

The Zambian CLP affords a firm who has engaged in cartel conduct, who is ‘first through the door’ in disclosing the cartel and who provides the CCPC with sufficient evidence to prosecute the cartel total immunity from an administrative penalty.

Unlike its South African counter-part, the Zambian CLP also caters for a ‘leniency plus’ whereby the ‘second through the door’ may qualify for up to a 50% reduction in respect of a potential administrative penalty.

In spite of leniency policies being regarded as arguably the most effective tool by which competition agencies detect and prosecute cartel conduct, we are not aware of the CCPC having yet received an application in terms of its CLP (as at March the CPCC had confirmed that it had not yet received such an application).

The reluctance by firms to come forward and expose cartel conduct in Zambia may be due to the fact that the Zambian CLP only extends immunity in respect of administrative liability and does not protect a whistle-blower from potential criminal or civil liability.

Despite the lack of success which the Zambian CLP has achieved thus far, the policy has only been in effect for just over a year. Furthermore, the CCPC has strengthened its efforts in initiating and concluding investigations in various sectors (which includes the stockbroker, frozen fish and milling industries, the latter of which is still on-going).

Accordingly, and in light of the recently published Draft Guidelines for the Issuance of Fines (Guidelines) (now for public comment), there may well be more activity in so far as the CLP is concerned.

The Guidelines are clear in that administrative penalties should be punitive and should have a sufficient deterrent effect. The CCPC has expressly stated that it does not want administrative penalties to merely be considered as a ‘cost of doing business’ in Zambia.

Unsurprisingly, the Guidelines confirm that in respect of cartel conduct, “the fines to be imposed will be the highest due to the seriousness of the conduct”. Furthermore, the Guidelines state that “preceding such fines may be conviction for criminal culpability by a Court of Competent jurisdiction”.

In terms of the Competition and Consumer Protection Act (the “Act”), a firm’s potential liability is capped at 10% of its turnover derived within or from Zambia (similar to the EU’s 10% turnover cap), although the implementation of this cap is uncertain as we indicate below.

The Guidelines state that the 10% cap should be based on the latest audited financial years. While the CCPC will accept management accounts in certain circumstances, it should be noted that the CCPC will add 5% to the total as reflected in the management accounts.

Importantly, while the Guidelines recognise that an administrative penalty may be adjusted depending on aggravating or mitigating circumstances, the Guidelines provide, as a starting point, a ‘base fine’ which will be calculated in accordance with the nature of the contravention. We set these out below.

Base (%)

Conduct

7

Cartels

4

Resale Price Maintenance

4

Abuse of Dominance

3

Mergers

5

Restrictive Business Practices

John Oxenham, an African competition law practitioner, notes that the ‘base fine’ is “calculated utilising a firm’s aggregated turnover generated in or from Zambia, irrespective of the relevant market. In other words, the CCPC considers a firm’s total turnover in Zambia as the affected turnover, which can cause fines to mushroom in the case of diversified conglomerates with large revenues even where the affected, cartelised product market is de minimis.”

Importantly, in relation to prohibited horizontal or vertical conduct, the CCPC will impose a fine based on each year in which the parties contravened the Act, up to a maximum of five years. While the Guidelines as noted above, expressly state that the total penalty will be capped at the statutory cap of 10%. In light of the fact that the base fines start at 4% (which would in any evet exceed the statutory cap after only 2.5 years) it seems that the CCPC is of the view that each year in which a firm engaged in cartel conduct should be viewed as a separate contravention (i.e. that the statutory cap only applies per contravention). This will need to be clarified as a firm who is found to have engaged in anti-competitive conduct (including vertical restrictive practices) may be subjected to an exorbitant administrative fine.

It remains to be seen whether the significant administrative liabilities which is contemplated in terms of the Guidelines is indeed permissible and in accordance with the Act, and secondly, whether it will incentivise firms to take advantage of the CLP.

In April 2016, the Namibian Competition Commission (NaCC) finalised its guidelines on restrictive practices (Guidelines) in terms of chapter three of the Namibian Competition Act. The Guidelines focus in particular on the investigatory powers and procedures to be utilised by the NaCC during its investigations into restrictive practices.

The Namibian Competition Act contains most of the traditional antitrust prohibitions in relation to restrictive conduct. These include ‘agreements’ or ‘concerted practices’ between firms in a horizontal or vertical relationship which have the “object” or “effect” of substantially lessening competition in the market.

The Competition Act does not, from a plain reading of the language, impose a per se prohibition for ‘hardcore’ cartel conduct. The Guidelines, however, confirm that certain practices such as ‘hardcore cartel conduct’ and ‘minimum resale price maintenance’ will be considered per se to be anticompetitive. It is unclear, however, whether this per se contravention should rather serve as a presumption that the conduct is anti-competitive which may affect the onus of proof, rather, as in the South African context where the Act makes it clear that the effect of hardcore cartel conduct is irrelevant.

Furthermore, there is no express provision which deals with ‘rule of reason’ defences, however, the Guidelines confirm that efficiency or pro-competitive features of the alleged anti-competitive conduct, may outweigh any anti-competitive effect. It should be noted, however, that even if there was no anti-competitive effect, if the objective of the conduct was to engage in an anti-competitive agreement or concerted practice, a respondent may still be liable. Accordingly, conduct must not only be shown not to have an anti-competitive effect, but must also be properly ‘characterised’ as not being anti-competitive, in order to avoid liability.

The Namibian Competition Act also prohibits abuse of dominance conduct. The Act does not contain thresholds or criteria for deterring when a firm would be considered ‘dominant’, however, in term of the Competition Commission’s Rules, a firm:

will be considered dominant if it has above a 45% market share;

will be presumed dominant if it has between 35-45% market share (unless it can show it does not have market power); or

has a market share of less than 35%, but has market power.

Although the abuse of dominant provision is intended to prohibit a broad range of potential anti-competitive conduct, the Act in particular, notes the following conduct which, if a firm is dominant, is restricted:

applying dissimilar conditions to equivalent transactions with other trading parties; and

making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts.”

Importantly, the Namibian Competition Act does not state that the conduct identified above must lead to a substantial-lessening of competition in the market. Furthermore, in terms of the Guidelines, the NaCC not only considers the conduct of and individual firm, but also considers the conduct of a “number of connected undertakings acting collectively” for purposes of considering whether there has been an “abuse of dominance”.

It should be noted that the Namibian Competition Act does cater for exemptions from the application of Chapter 3 (i.e. restrictive practices) and sets out in some detail the requirements and terms upon which an exemption may be granted.

As noted above, however, the most elements contained in the Guidelines relate to the NaCC’s investigatory powers.

In terms of the Namibian Competition Act, the NaCC may initiate a complaint or may elect to investigate a third party complaint.

The NaCC‘s investigatory powers include the power to conduct search and seizure operations. Importantly, the NaCC may take into possession any evidence which, in its opinion, will assist in the investigation. This is so even if such evidence would not be admissible as evidence in a court of law. For purposes of obtaining witness statements, however, a witness has the same rights and privileges as a witness before a court of law.

The Guidelines also confirm that the NaCC is not entitled to peruse or seize “legally privileged” documents unless privilege is waived. Interestingly, the Guidelines do not appear to protect communication between in-house legal and the firm and refers to legally privileged communication as that between “lawyer and client” only.

Search and seizure operations must be conducted in terms of a valid search warrant.

The Guidelines also contains further guidance on various topics and caters for a number of procedural aspects which must be adhered to (as well as the prescribed forms which should be utilised in certain circumstances) in relation to, inter alia the following:

initiating complaint;

applying for an exemption;

requesting an advisory opinion;

handling and the use of ‘confidential information’;

The Guidelines is no doubt a stern indication that the NaCC is preparing to heighten its intensity in terms of investigating and prosecuting restrictive practices. Since inception, the NaCC has dealt with over 450 merger cases, but has only handled approximately 40 restrictive practice complaints.

Furthermore, and in line with the NaCC’s newly adopted 5 year ‘Strategic Plan (2015-2020), the NaCC is growing in confidence and competence and firms should be aware that the NaCC will look to utilise the dawn raids provisions when necessary.

More on the revised Guidelines for the public-interest assessment in southern African’s largest economy… By AAT guest author Anne Brigot-Laperrousaz.

In December 2015, the South African Competition Commission (the “Commission”) issued revised guidelines for the assessment of public interest provisions in mergers (the “Guidelines”). This document is a further step in a long process aiming at ensuring better efficiency in the Commission’s evaluation of mergers. One of the main rationale is that informed parties will be able to anticipate the documentation and data to be transmitted to the Commission in view of obtaining its approval. Transparency, predictability and clarity, all of them fundamental aspects of legal certainty, shall result in reduction of delays and enhancement of legitimacy of the Commission’s decisions.

In January 2015, the Commission issued a first draft of those Guidelines, open to comment by stakeholders. Several bodies answered positively to this initiative, including law firms (Bowman Gilfilan, Baker & McKenzie, …), companies (Vodacom, Tabacks), international associations (International Bar Association) and policy research centers (UK Center for Competition Policy). The December 2015 Guidelines are the result of this broad enquiry, and the final version open to comments until the 29th January 2016.

Public-interest considerations abroad

Firstly, the international perspective on public interest considerations in the assessment of mergers might offer an interesting insight to the question.

In Europe, at Community level, the EU Merger Regulation (the “EUMR”) prevents the European Commission to assess non-competition considerations in its analysis of the proposed transaction. Indeed, Article 2 EUMR sets out a test based exclusively on the potential “significant impediment to effective competition”, and the available remedies when the merger might result in such an impediment.

Yet Article 21(4) EUMR allows interventions of Member States to protect three determined types of public interests, namely, public security, plurality of the media and prudential rules. Exceptionally, the European Commission may allow a national measure aimed at protecting a different legitimate interest, although this procedure is rarely used. In any case, the measures taken shall be compatible with the general principles and provisions of European Union law.

A major difference between EU and US competition laws is that the former was meant to serve as a tool to achieve a State union, whereas the latter intervened in an already federated region. This feature arguably plays a significant role in the importance attached to further political aims in the elaboration of the competition framework, although this feature did appear at the first stages of the US.

Two US institutions are today in charge of reviewing the competitive effects of mergers: the Antitrust Division of the US Department of Justice, and the Federal Trade Commission. Those two institutions act as competition regulators, focusing exclusively on the competition aspects of targeted operations. Other public policy interests, related to specific sectors, might be analysed and taken into account under the responsibility of other US agencies, such as the Federal Communication Commission or the Federal Reserve and the Federal Deposit Insurance Corporation. Such agencies therefore act as sector or industry regulators.

To the extent that the South African Competition Act (1998) (the “Act”) gives a particularly important role to public interest criteria in merger controls, the need for transparency and clarity in the Commission’s assessment mergers is all the more crucial.

ZA: The integration of stakeholders’ comments by the Competition Commission

As for the general observations on the January 2015 guidelines, some constants remain in most of the stakeholders’ commentaries.

This is so in particular as regards evidential requirements, that is, the type and nature of information that would generally be required from the merging parties. Although the Guidelines do provide a relatively detailed and insightful perspective on the Commission’s methodology in assessing mergers, it does not appear that they answer this recurrent request, even in the form of non-exhaustive references to specific documents.

Tembinkosi Bonakele, the South African Competition Commissioner, had the following to say on the topic, when interviewed for AAT’s Meet the Enforcers:

It is important that BRICS countries weigh-in on this important debate. There is a divergence of views amongst many antitrust practitioners on the compatibility of antitrust issues with public interest issues, but everyone accepts that there are public interest issues. The conference will deepen and broaden perspectives on the matter. …

The South African competition authorities were established as a package of reforms to transform the unequal South African economy to make it economy inclusive and ensuring that those who participate in it are competitive.

Through engagements such as the BRICS conference we’re able to discuss with our BRICS counterparts how to make our economies, which are similar, more efficient, competitive and inclusive.

A second concern regards the issue of “balancing” competition and other public policy interests. The different nature of those matters, implying various qualitative and quantitative methods of assessment, arguably makes this task “inherently arbitrary”. This is even more so in presence of the broad and general principles addressed by the Act, and that the Guidelines arguably ought to determine and circumscribe. In their revised version, although some further precisions on the process and the determining factors of the Commission’s assessment have been added, some grey areas remain. For instance, some commentators have highlighted the fact that as regards the effect of the merger on a particular industrial sector or region, the Commission “may consider any public interest argument in justification of the substantial negative effect arising as a result of the merger on an industrial sector or region” (Guidelines, §7.2.4.2). It is our view that this wording is all too broad and undetermined to provide useful guidance to practitioners, and ensure a transparent and consistent analysis by the Commission. Not to mention that, as noted by the International Bar Association, the Act limits the Commission’s jurisdiction in evaluating public interest matters in merger reviews. This reference to “any public interest” arguably overlooks the Commission’s limited jurisdiction. Unfortunately, this comment does not seem to have been taken into account in the drafting of the revised version.

The same analysis can be made of the use of such concepts as causality, for example, which is not clearly defined. Furthermore, the Guidelines often provide for the possibility to prove that the effect “results or arises from” the merger, together with the requirement of a causal link, undermining the precise and strict legal requirements that are entailed by the notion of causality (see §7.2.2.1). In other instances, the Commission will merely “consider whether the employment effects are in any way linked to the intentions […] of the acquiring group”, which broadens unreasonably the scope of analysis.

Overall, when considering the clarifications that were called for in various submissions from stakeholders, it appears that in most cases, where the comments have been echoed in the revised Guidelines, the drafting committee has hidden the difficulties rather than going further in its analysis.

For instance, several commentators have expressed their surprise at the principle stated in the January 2015 version of the Guidelines, in the section dedicated to the general approach to assessing public interest provisions, that when the Commission found that the public interest effects were neutral, it would balance the negative and positive effects (§6.6). Indeed, the concept lacked clarity, and does not appear in the revised Guidelines.

Yet, some more substantial comments, in that they pointed to more potentially noxious loopholes, have apparently been disregarded. This is the case of the consequences of the finding of negative competition and public policy effects, a situation where the Commission does not seem to consider the possibility to justify and find remedies. It appears that the result would be a forthright prohibition of the transaction, even if other ways could have existed.

More generally, the perspective on the matters at stake seems to be rather hostile. For instance, in cases where negative public interest effects have been identified, the Commission “may consider imposing remedies or prohibiting the merger depending on the substantiality of the public interest effects”. It may be considered that a more relevant criterion might have been the existence and efficiency of potential remedies, rather than the substantiality of the negative effects at stake. Indeed, although the substantial character of the adverse effects might be a suitable criterion to set the standard of analysis, it does not easily justify to disregard possible remedies, which seems to be the result of the present wording.

Similarly, the Guidelines seem to set the existence of a positive competition finding as a threshold to its analysis. It has been advocated that a more suitable logic would be that the starting point is the absence of any prevention or lessening of competition, which would be more in line with both the Act and the role it affords to public policy concerns, and international best practice.

Conclusion

As noted by the International Competition Network, “the legal framework for competition law merger review should focus exclusively on identifying and preventing or remedying anticompetitive mergers. A merger review law should not be used to pursue other goals”.

Since the introduction of public policy issues in merger control is broadly considered to require cautiousness and measure, it is questionable if the revised Guidelines abide by this general principle of predictability and transparency as regards those matters. Although clear efforts have been made, the public policies at stake do not appear to have been sufficiently identified and articulated with what should remain the fundamental purpose of merger control, that is, the competitive effects of the transaction at stake.

That is particularly so in view of the nature of the Commission, which has no particular expertise in the public policy matters that it his charged to assess. As it is the case in other jurisdictions, such as the UK, it may be useful to create the possibility for the Commission to obtain input from other specialised government agencies or department, although through a transparent and public process which would prevent any diversion of the Act and the Commission’s purposes.

On 17 April 2015, the new Guidelines were published in the Government Gazette (No. 38693). The Guidelines will come into effect on 1 May 2015.

The Guidelines have been adopted in response to criticism that there is a lack of transparency, certainty and consistency when imposing administrative penalties on firms for prohibited conduct.

Notably the Guidelines are virtually identical to the guidelines which were published in November 2014 for comment (“draft guidelines”). Despite a number of individuals and entities submitting proactive and substantive comments to the South African Competition Commission (“SACC”) in relation to the draft guidelines, it is somewhat remarkable that the only material change effected by the SACC is to be found in the Guidelines is in 5.19.4., which deals with repeated conduct in terms of Section 59(3)(g) of the Competition Act, 89 of 1998 (the “Act”). The Guidelines now requires that a firm must have engaged in conduct which is substantially a repeat, of conduct previously found by the Competition Tribunal to be a prohibited practice. Previously, the word “substantially” was omitted from the draft guidelines. Beyond this the Guidelines mirror the draft guidelines of 2014.

The Guidelines set out a six step process to be used by the SACC to calculate administrative penalties. The six steps are summarised below:

An affected turnover in the base year is calculated;

the base amount is a proportion of the affected turnover ranging from 0-30% depending on the type of infringement (the higher end of the scale being reserved for the more serious types of prohibited conduct such as collusion or price fixing);

the amount obtained in step 2 is then multiplied by the number of years that the contravention took place;

the amount in step 3 is then rounded off in terms of Section 59(20 of the Act which is limited to 10% of the firms turnover derived from or within South Africa;

the amount in step 4 can be adjusted upwards or downwards depending on mitigating or aggravating circumstances; and

the amount should again be rounded down in accordance with Section 59(2) of the Act if the sum exceeds the statutory limit.

It is important to note in the case of bid-rigging or collusive tendering, the affected turnover will be determined by calculating the value of the tender awarded. Thus, even where a firm deliberately ‘loses’ a tender, the firm will be subjected to an administrative penalty which calculates the value of the tender in the hands of the firm who ‘won’ the tender.

The Guidelines are not, however, clear as to how the affected turnover will be calculated when the value of the tender is not readily ascertainable.

Part of the objectives of the Guidelines is to encourage settlement proposals and outcomes. The SACC may at its sole discretion, offer a discount of between 10-50% of a potential administrative penalty as calculated in terms of the six steps identified. There are a number of factors that will determine what discount percentage will apply, including the timing, pro activeness and co-operation of the firm, during the settlement discussions.

Importantly, in terms of the Guidelines, a holding company (parent company) may be held liable for an administrative penalty imposed on one of the holding company’s subsidiaries (the proviso is that the holding company must directly control the subsidiary company). This is a noteworthy development and certainly raises constitutional concerns. The disregard of separate juristic personality, which is a well established principle in South African law, is problematic. These concerns, which were initially addressed by various parties with the SACC, have seemingly been ignored.

While the Guidelines are binding on the SACC, the Guidelines also afford the SACC the use of its discretion to impose administrative penalties on a case-by-case basis. Furthermore, the Guidelines are not binding on the Competition Tribunal or the Competition Appeal Court, who may also use their discretion to impose administrative penalties on a case-by-case basis.

It in what AAT regards as a highly commendable step, the South African Competition Commission (“Commission“) has recognised that there has been a need voiced by the Competition Tribunal (“Tribunal”), the Competition Appeal Court (“CAC”) and corporate South Africa for the Commission to develop guidelines for determining administrative penalties.

The Commission has published Guidelines for the Determination of Administrative Penalties for Prohibited Practices (“November Guidelines”), which set out a proposed methodology which the Commission will (consistently) follow when concluding consent agreements, settlement agreements and when recommending an administrative penalty in a complaint referral before the Tribunal. The Commission’s methodology is nothing new, it is based on the Tribunal’s six-step approach set out in Competition Commission v. Aveng (Africa) Limited t/a Steeledale, Reinforcing Mesh Solutions (Pty) Ltd, Vulcania Reinforcing (Pty) Ltd and BRC Mesh Reinforcing (Pty) Ltd and confirmed by the CAC in Reinforcing Mesh Solutions (Pty) Ltd and Vulcania Reinforcing (Pty) Ltd v. Competition Commission. However, the Commission has now listed factors, which are not explicitly included in the Competition Act, which should be taken into account, such as whether the firm has in any way delayed, obstructed, and/or assisted in expediting the investigation and litigation process and the Commission is also proposing an elaboration of the factors provided for in the Competition Act. One such example is section 59(3)(c), which deals with the behaviour of the firm in the market during the period of the contravention. In the November Guidelines, the Commission has provided a list of factors to be taken into account, such as the involvement of directors and/or senior management in the contravention and the firm’s encouragement of staff to participate in the contraventions for example. through personal incentives linked to the success of the contravention. In addition, the Commission has proposed in its November Guidelines, that it “may impute liability for payment of the final administrative penalty on a holding company (parent company) where its subsidiary has been found to have contravened the Act.”

The November Guidelines have been made available to the public for comment by Friday, 30 January 2015. Written comments on the guidelines can be e-mailed to: NellyS@compcom.co.za.

We commend the CCC for not only publishing its Guidelines in draft form prior to finalization, but for following international best practices by engaging in what promises to be a substantive and professionally-run review project, akin to the U.S. and EU enforcement agencies.

For what it’s worth, some of our observations on the Guidelines are below.

The CCC explicitly endorses a collective-dominance theory of harm in its Dominance Guideline. A concept largely shunned in the United States (“shared monopoly”), collective dominance is rarely used but admittedly recognized by the EU courts and competition authorities.

The Merger Assessment Guidelinegives the formal rationale underlying the mystifyingly low “zero-dollar threshold” problem that has plagued COMESA’s CCC since its inception: the threshold for notification has been set at zero “because different Member States are at different levels of economic development and hence a realistic threshold can only be determined after the Regulation has been tested on the market”. Notably, the authority also predicts in this document that “the threshold shall be raised after a period of implementation of the Regulation” — a move that cannot come too soon and that should not come as any surprise to readers of this blog or to practitioners and parties, which have had to deal with outsized notification-fee demands by the agency for transactions with low to no revenues in the COMESA zone in the past.

Lastly, this “regional glue” of the 19-member state organization also underpins a key aspect of the CCC’s Public Interest Guideline, which emphasizes this element of unity across the COMESA region as an important factor in identifying the otherwise “amorphous” concept of public interest. Rather commendably in this regard, the Competition Commission recognizes the presumption that competition / antitrust should be the “weightiest” of all the conceivable public interest criteria that may be raised by parties and/or member states in future proceedings.